|This article is from the Fall 2005 issue of Hospitality Upgrade magazine.To view more articles covering technology for the hospitality industry please visit the Hospitality Upgrade Web site or to request a free publication please call (678) 802-5307 or e-mail.|
|By Caryl Helsel
In 2003, American Express Travel quietly introduced best available rate (BAR) contracts for the 2004 contract year. American Express designed the new program in response to the growing challenge facing travel managers in preventing travelers from making bookings via online agencies.
Travel managers are under pressure to convince travelers that the company
pays a heavy price in negotiating and tracking ability for every rebel
traveler who books a hotel room outside the designated channel. During
the 2004 contract year, additional consortia, corporations and meeting
planners instituted BAR pricing and only those hotels who could offer it
were accepted into the preferred programs or group blocks for 2005.
During the 2005 contracting year even more negotiations will require support
As hotels are continually feeling the strain of downward rate pressure due to the online retailers and the merchant model, so are consortia, mega travel agencies, meeting planners and corporate travel departments (referred to as travel contractors) continually feeling the stress to offer these lower rates to their travelers and clients. However, the last thing that hotels can afford is to offer a merchant model-type program to all of the travel contractors which have traditionally been a hotel’s best and highest ADR revenue source.
In order to understand the issue, a look at the past is in order. Travel contractors have contracted with hotels for a fairly static rate throughout the year. Though the rate could be offered seasonally, with high season, shoulder season and low season rates being contracted, it was not flexible on a daily or even hourly basis. In addition, most consortia contracts, and many corporate contracts, required last room availability without restrictions. Before the proliferation of rates on the Internet and the merchant business model explosion, this type of pricing was beneficial for both hotels and the travel contractors.
However, now that rates are transparent to the traveller, and now that most hotel companies have agreed to do business with merchant model online travel agencies, the old model no longer works for travel contractors. Thus, they have been searching for a new pricing model to compete in the new world of hotel distribution.
As a result, many have decided to pursue BAR pricing. While this may be great for the travel contractor, this type of pricing, if not managed well, could exacerbate a downward spiral of RevPAR for many hotels. Thus, hotel companies must be certain they manage pricing even better in the future, as this rate model gains popularity in the corporate and consortia world.
As a result of this new pricing model for travel contractors, there are many key opportunities for hotels and travel contractors to examine:
Opportunity 1: Hotels must employ congruent pricing strategies as quickly as possible. This will permit pricing to be equal across channels and will allow prices to be appropriately increased when demand indicators dictate an increase.In order to act on the key opportunities available, all business partners in this new model have challenges that must be faced and resolved:
Challenge 1: Hotel technology must be able to support dynamic pricing. Though many systems support dynamic pricing, not many connect to all online retailers to make immediate changes and many hotels have the systems configured incorrectly to support dynamic pricing. In addition, many smaller hotel companies do not use revenue management systems, which would allow a system instead of a human interface to control their pricing strategy.In order to manage this process more effectively, hotels need to employ the following success factors.
First, hotels must immediately create online and offline pricing strategies to ensure their future success and RevPAR performance. Without this step, BAR will further delude revenues and undermine hotel pricing efforts.
Second, hotels must immediately employ congruent pricing and intelligent revenue management. Congruent pricing, resulting in intelligent revenue management is defined as maximizing ADR and RevPAR through optimal market segment mix management and distribution channel management via intelligent pricing strategies per segment.
Third, hotel corporate offices need to carefully monitor their hotels to ensure compliance with the new pricing models. Without these checks and balances in place, rogue directors of revenue will play their own games, ultimately resulting in angry travel contractors and deluded RevPAR.
Next, hotel corporate offices and individual hotels must provide the technological and human resources to their directors of revenue to ensure they can efficiently manage flexible pricing in all channels. Without human and technological resources, very capable and intelligent directors of revenue will find it extremely difficult to maintain congruent pricing. This new pricing may require purchasing new, or configuring differently, reservations, revenue management and/or property management system technology.
Finally, hotels must support this new pricing model, but must be prepared to manage it effectively. This model has already been successful for American Express and other mega agencies and corporations, thus it is likely others will follow.
If appropriately managed, this new pricing model can be successful for
hotel and travel contractors alike. But hotels must ensure they manage
it well to be successful.
Hospitality Upgrade magazine
and the Hospitality Upgrade.com website
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